Mandatory ER Contributions

[Guest hpaine]

I have an employee that is asking for specific IRS code language that states that an employer who makes a match, HAS TO PROVIDE THAT MATCH ON A PER PAYPERIOD BASIS. The employee thinks that the company can't choose to make a year-end contribution and require the participant to be employed on the last day of the plan year. Any ideas on where I can find this so-called "code"??

I know that the employer can require hours and last-day rules when it comes to a discretionary match, however, the employee will not take my word for it.

Any help would be appreciated!! Thanks!

[QDROphile]

Proponents of flaky ideas have to show why they are right, not the other way around.

[Guest hpaine]

Isn't that the truth! However, it still doesn't answer my question.

[Archimage]

I don't know the code reference but maybe you could show him the plan document where it states this requirement and then show him a copy of the plan doc's IRS opinion or determination letter saying the doc is okay.

[QDROphile]

Don't spend your time trying to prove a negative with idiots. Give them the answer politely, refer them to the avaliable resources and go on with your productive activity.

[austin3515]

Revenue Ruling 76-250.

[Guest hpaine]

Thank you for the information. I'm not going to spend a lot of time. The funny thing is the employee is threating to sue the employer.

[david rigby]

http://www.taxlinks.com/rulings/1976/revrul76-250.htm

[Guest hpaine]

Thanks for your help!

[GBurns]

Aside from the obvious fact that Rev Ruling 76-250 predates 401(k) and therefore could not address it, it does not even seem to address the issue posted.

The Rev Ruling pertains to minumum participation, vesting requirements and warns of a 401(a)(4) failure.

Where do you see this as being applicable to the post which concerns ER matching contribution timing in particular year end (with last day employment) vs. per pay period?

[mbozek]

I am confused as to what is being asked by the employee-- There is no requirement that an employer match employee contributions as they are made. See Dol reg 2530.200b-1(B). Many er match employee contributions every quarter or even more infrequently. The reg clearly covers DC plans which includes 401(k) plans. Also see reg. 1.401(m)-1(B)(1)(ii)- Matching contributions are taken into account for ACP purposes if the contribution is allocated to the ees account under the terms of the plan as of any date within the plan year, is actually paid to the trust no later than 12 months after the end of the plan year and is made on account of an employee's contribution for the plan year.

As for suing the employer, the employee is going to have to find a lawyer who is ignorant of the law enough to file such a claim. The employee is going to have to find precedent to support this position in order to file a complaint. Hopefully the federal ct will impose monetary sanctions under rule 11 on the employee for bringing a frivolious claim

[Guest hpaine]

Well, that's the thing. The employee should be lucky that he's even receiving an employer match to begin with. There is no law that states an employee 1) has a right to receive an employer contribution & 2) that the employee can mandate when the contribution is to be made.

If I provide him with the SPD, the employee will come back to me and ask where the info. in the SPD came from and the tax laws that govern the plan. I agree that this is a frivilous claim, however I needed to provide the employee with some type of written explanation as to what the employee's and employer's rights are in this particular situation.

[R. Butler]

I would provide the employee with a copy of the SPD and if he still isn't satisified at some point you gotta just politely tell the employee to proceed how he/she feels necessary.

If you wanted you could provide him/her with a copy of the Rev. Rul. cited or the Dol Reg. cited by mbozek. That DOL Reg. provides in part that "...Such a plan, therefore, may provide that an individual who has been a participant in the plan, but who has separated from service before the date on which the employer's contributions to the plan or forfeitures are allocated among participant's accounts or before the last day of the vesting computation period, does not share in the allocation of such contributions or forfeitures even though the individual is credited with 1000 or more hours of service for the applicable vesting computation period."

[austin3515]

GBurns

I don't see why 76-250 needs to be revised to be applicable under a 401(k) Plan. The revenue ruling isn't specific to any sort of a contribution? It's simply specific to a defined contribution plan. Last time I checked a 401(k) was a defined contribution plan.

I think the ruling makes it perfectly clear that the last day rule/1,000 hour rule is acceptable as long as coverage is still passed.

The employees had two questions 1) Can you have a 1,000 hour or last day rule. My response answers that question. I did not touch upon the second one (must the employer remit every pay period), because the answer to 1) implies the answer to 2. How else would you know who works 1,000 hours and whose employed on the last day.

As for the 401(a)4 comment, the ruling also discusses 410 and 411. Regardless, the point is clear that you may have a 1,000/last day rule.

Leave your attitude at the door GBurns...

[GBurns]

Most posters have the common courtesty to leave personal comments out of their posts. I do not think that there is anyone who else posts on a regular basis to this Board who thinks that they are above question. If somehow you see "attitude" in my post, I suggest that you could/should consider the possibility of a remedial course in reading comprehension.

To quote fron Rev Rul 76-250:

"A participant who completes 1,000 hours of service in a particular year does, however, not cease to be a participant for such year, for the purposes of the minimum participation standards of section 410 of the Code, merely because he separates from service before the end of that year. "

Therefore it is clearly not a requirement placed by the Rev Ruling that the participant be employed on the last day. In fact there are many employees who will work enough overtime etc etc to complete 1000 hours in the first 6 to 9 months of any given year.

As mbozek points out it is not clear what the employee is really asking, therefore there are questions to be asked and things to be discussed... That is the purpose of these Boards.

The original post referred to (1) a last day requirement NOT a 1000 hour/last day and (2) a per pay period ER contribution.

The cited Rev Ruling shows that there is no statutory last day requirement and it does not address the per pay period contribution.

[JanetM]

You could point out that the employer has a period of time after the close of the plan year to make the contribution into the plan. Using common sense (which is not very common) it should be inferred that if you can wait months after the end of the year - it can not be mandated to match on pay period basis.

IRC 404(a)(6) Time when contributions deemed made.--For purposes of paragraphs (1), (2), and (3), a

taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment

is on account of such taxable year and is made not later than the time prescribed by law for filing the return for

such taxable year (including extensions thereof).